Jorge Yarur Bascuñan, Tarascona Corp. v. Daniel Yarur Elsaca, CristiáN Jara Taito, Oscar BretóN Dieguez, GM & E Asset Mgmt. S.A., Fintair Fin. Corp.

• Citation: 338 F.Supp.3d 301
• Decision Date: 06 September 2018
• Docket Number: 15 Civ. 2009 (GBD)
• Parties: Jorge YARUR BASCUÑAN, Tarascona Corp., Hofstra Corp., Inmobiliaria Milano S.A., Inmobiliaria E Inversiones Tauro S.A., and Inversiones T & V S.A., Plaintiffs v. Daniel YARUR ELSACA, Cristián Jara Taito, Oscar Bretón Dieguez, GM & E Asset Management S.A., Fintair Finance Corp., Euweland Corp., Hay's Finance Corp., Cary Equity's Corp., Agrícola E Inmobiliaria Chauquén Limitada, Alapinjdp Investing Corp., San Investment Company Ltd., and John Does 1–10, Defendants.
• Court: U.S. District Court — Southern District of New York

338 F.Supp.3d 301

Jorge YARUR BASCUÑAN, Tarascona Corp., Hofstra Corp., Inmobiliaria Milano S.A., Inmobiliaria E Inversiones Tauro S.A., and Inversiones T & V S.A., Plaintiffs

v.Daniel YARUR ELSACA, Cristián Jara Taito, Oscar Bretón Dieguez, GM & E Asset Management S.A., Fintair Finance Corp., Euweland Corp., Hay's Finance Corp., Cary Equity's Corp., Agrícola E Inmobiliaria Chauquén Limitada, Alapinjdp Investing Corp., San Investment Company Ltd., and John Does 1–10, Defendants.

15 Civ. 2009 (GBD)

United States District Court, S.D. New York.

Signed September 6, 2018

Jesse Travis Conan, Robin L. Alperstein, William Howard Newman, Becker, Glynn, Muffly, Chassin & Hosinski LLP, New York, NY, for Plaintiffs.

Jennifer M. Selendy, Selendy & Gay PLLC, David Scott Flugman, Kirkland & Ellis LLP, William Balden Adams, Quinn Emanuel Urquhart & Sullivan, LLP, New York, NY, for Defendants.

MEMORANDUM DECISION AND ORDER

GEORGE B. DANIELS, United States District Judge:

Plaintiff Jorge Yarur Bascuñan, as well as several entities he owns and controls (the "Bascuñan Entities"), bring this action under the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1961 et seq. , against Defendants Daniel Yarur Elsaca, several entities he owns and controls, and two of his associates, Cristián Jara Taito ("Jara") and Oscar Bretón Dieguez ("Bretón").¹ (Second Am. Compl. ("SAC"), ECF No. 76, ¶¶ 6–26.) Plaintiff alleges that Defendants violated and conspired to violate RICO by engaging in numerous predicate acts of racketeering activity, including mail fraud, wire fraud, bank fraud, money laundering, and violations of the Travel Act, with the purpose and intent of misappropriating millions of dollars Plaintiff inherited from his late parents in the late 1990s. (Id. ¶¶ 1–3, 185–234, 236–39.) Plaintiff also asserts several state law causes of action for unjust enrichment, constructive trust, and accounting. (Id. ¶¶ 186–234, 236–39, 241–45, 247–50, 252–58.)

Defendants previously moved to dismiss this action for lack of personal jurisdiction and failure to state a claim under RICO, among other grounds. (See Mot. to Dismiss, ECF No. 35; Mem. in Supp. of Mot. to Dismiss, ECF No. 36,) After this Court heard oral argument on the motion, but before a decision was rendered, the Supreme Court issued an opinion in RJR Nabisco, Inc. v. European Cmty. , ––– U.S. ––––, 136 S.Ct. 2090, 195 L.Ed.2d 476 (2016). In RJR Nabisco , the Court held, among other things, that RICO does not apply extraterritorially and a private party suing under RICO must therefore "allege and prove a domestic injury to business or property." Id. at 2111.

Applying a residence-based test for determining whether Plaintiff suffered a domestic injury, this Court found that Plaintiff had failed to allege an economic injury in the United States, as opposed to in Chile or the British Virgin Islands ("BVI"), where he and the Bascuñan Entities "reside."² See Bascuñan v. Elsaca (Bascuñan I ), No. 15 Civ. 2009 (GBD), 2016 WL 5475998, at *6 (S.D.N.Y. Sept. 28, 2016). Accordingly, this Court granted Defendants' motion to dismiss, id. at *7, from which Plaintiff timely appealed. (See Notice of Appeal, ECF No. 68.)

On appeal, the Second Circuit vacated Bascuñan I and remanded the case to this Court for further proceedings. See Bascuñan v. Elsaca (Bascuñan II ), 874 F.3d 806, 824–25 (2d Cir. 2017). In doing so, the Second Circuit held as a matter of first impression that "when a foreign plaintiff maintains tangible property in the United States, the misappropriation of that property constitutes a domestic injury." Id. at 814. On remand, this Court granted Plaintiff leave to amend his complaint to meet the new domestic injury pleading standards set forth in Bascuñan II . (See Order dated Dec. 13, 2017, ECF No. 75, at 1.)

Defendants now move to dismiss the SAC in its entirety pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. (Mot. to Dismiss, ECF No. 84.) Defendants argue dismissal is warranted because, among other things, the SAC fails to allege a domestic injury with respect to much of Defendants' alleged conduct. (See Mem. in Supp. of Mot. to Dismiss ("Mem."), ECF No, 85, at 19–21.) Defendants also contend that to the extent the SAC does allege a domestic injury under RICO, it impermissibly relies on an extraterritorial application of the RICO predicate statutes. (Id. at 21–24.) Finally, Defendants argue that the SAC fails to adequately allege a continuous pattern of racketeering activity, as required to state a claim under RICO. (See id. at 24–26.)

Because the SAC fails to allege a domestic injury, impermissibly relies on an extraterritorial application of RICO, and fails to adequately allege a continuous pattern of racketeering activity, Defendants' motion to dismiss is GRANTED.

I. FACTUAL BACKGROUND³

A. The Bascuñan Estate

Plaintiff, a citizen and resident of Chile, inherited a substantial family fortune (the "Bascuñan Estate") following the death of his parents in the 1990s. (SAC ¶¶ 7, 35.) The Bascuñan Estate consists largely of companies and assets owned by Plaintiff, including a substantial stake in Banco de Crédito e Inversiones ("BCI"), a Chilean bank formerly headed by Plaintiff's father and in which he held a controlling interest prior to his death. (Id. ¶ 35.)

Unable to manage his own finances due to various physical and emotional ailments, Plaintiff relied on a financial manager initially hired by his parents. (Id. ¶¶ 36–37.) In 1999, however, Plaintiff engaged his cousin, Defendant Elsaca, to manage the Bascuñan Estate. (Id. ¶¶ 37, 39.) Elsaca, also a citizen and resident of Chile, is an economist and licensed accountant by trade, and the former head of the Superintendencia de Valores y Seguros (de Chile), which the SAC describes as the Chilean equivalent of the U.S. Securities and Exchange Commission. (Id. ¶¶ 14, 37.) Plaintiff agreed to pay Elsaca an annual salary for managing the Bascuñan Estate. (Id. ¶ 39.)

Soon thereafter, Elsaca convinced Plaintiff to grant him a power of attorney ("POA") that conferred broad authority on Elsaca to manage the Bascuñan Estate and enter into transactions on its behalf. (Id. ¶ 40.) The POA did not provide Elsaca with any additional compensation for his services. (Id. ¶ 43.) Instead, Elsaca paid himself a monthly salary for managing the Bascuñan Estate, as he and Bascuñan had agreed. (Id. ) Plaintiff alleges that for the ten years Elsaca was charged with managing the Bascuñan Estate, he and his co-conspirators engaged in a multifaceted fraudulent scheme to misappropriate money, securities, and other assets from the Bascuñan Estate to the tune of approximately $70 million. (Id. ¶¶ 3, 45.)

B. Afghan Trust Misappropriation

One aspect of Defendants' alleged scheme involved the misappropriation of assets from one of Plaintiff's trusts. (Id. ¶ 46.) The Afghan Trust, as the trust was known, was established in 1998 and administered by J.P. Morgan in New York, and used to finance Plaintiff's charitable endeavors. (Id. ¶ 47.)

In 2001, after Elsaca took over the management of the Bascuñan Estate, he established the Capri Star Trust on Plaintiff's behalf using funds from the Afghan Trust. ( Id. ¶ 48.) The Capri Star Trust was created and administered by UBS AG in New York and its stated purpose was also to finance Plaintiff's charitable undertakings. (Id. ) According to Plaintiff, however, the Capri Star Trust's true purpose was to enable Elsaca and his associates to divert money from the Afghan Trust to their own personal accounts in the United States and elsewhere in the form of sham fees. (Id. ¶ 50; id. Ex. A.)

The Capri Star Trust designated Elsaca as its investment advisor, entitling him to a fee set by the Trust Committee. (Id. ¶ 49.) The Trust Committee, whose sole members were Elsaca and his lawyer, non-party José Pedro Silva Prado ("Silva"), set the investment advisor's fee at 1% per annum of assets under management. (Id. ) Plaintiff alleges that Elsaca periodically authorized fund transfers from the Afghan Trust to the Capri Star Trust in order to generate higher investment management fees for himself. (Id. ¶¶ 52–53.) More specifically, Plaintiff alleges that although Elsaca did not actually provide any such investment advice, he and/or Silva transferred more than $2.7 million from the Capri Star Trust to accounts under Elsaca's control in New York and Switzerland in the form of sham investment management fees. (Id. ¶¶ 53–56; id. , Ex. A.) Elsaca and his agents allegedly authorized these fraudulent transfers by wires or mail to UBS employees in New York. (Id. ¶ 55.)

In addition, Plaintiff alleges that Elsaca and Silva conspired to extract money from the Capri Star Trust in the form of sham legal fees paid to Silva's law firm. (Id. ¶ 57.) Between 2001 and 2009, for example, Elsaca authorized approximately $390,000 to be paid from the Capri Star Trust's account to Silva for legal services that were never actually rendered. (Id. ¶¶ 58–64.) Elsaca and his agents also allegedly authorized these transfers by wire or mail to UBS employees in New York. (Id. ¶ 57.)

C. Fintair Misappropriation

Plaintiff also alleges that Defendants secretly misappropriated at least $60 million from the Bascuñan Estate using a web of investment funds and off-shore shell companies, including the Anacapri Private Investment Fund ("Anacapri"). (Id. ¶¶ 68–70.) According to the SAC, Elsaca created Anacapri for Plaintiff's benefit in 2003, using funds from three separate Bascuñan Entities Elsaca controlled pursuant to the POA. (Id. ¶¶ 71–72.) The SAC, however, does not indicate where the funds belonging to these entities were held before they were transferred to fund Anacapri. Plaintiff alleges that Elsaca thereafter caused Anacapri to acquire Fintair, a BVI company Elsaca created for himself in 2000. (Id. ¶ 74.)

Although Fintair became part of the Bascuñan Estate as a result of the Anacapri acquisition, Elsaca opened a bank account in New York in Fintair's name...